Alcoa Earnings: Totally Unimpressive

Karl Denninger submits: The "cheerleading" behind Alcoa's (NYSE: AA) results was amusing yesterday, given the market's reaction to the earnings announcement, hammering the stock by more than a buck and a quarter a share in the aftermarket.

Cash from operations in 4Q09 of $1.1 billion.

Free cash flow (FCF) of $761 million; FCF positive for first time since 2Q08.

Exceeded every operational cash sustainability target in 2009.

Loss from continuing operations of $266 million, or $0.27 per share.

Net charges for restructuring, special items and discrete tax items were $275 million, or $0.28 per share, in 4Q09.

Excluding these charges, Company had 2nd consecutive profitable quarter.

Revenues of $5.4 billion, up 18 percent from 3Q09.

Strong liquidity with $1.5 billion of cash on hand.

Debt-to-cap ratio down to 38.6 percent, 390 basis point improvement from year ago.

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Until its humiliating elimination from the Dow Jones Non-Industrial Average, Alcoa was the traditionally first company to usher in earnings season and the first company to set the mood for the DJIA. That is no longer the case. Still, on the surface, Alcoa's numbers were modestly good: after all it beats (heavily lowered) revenue estimates printing $5.77 billion in revenue on expectations of $5.63 billion, even if this was lower than both the $5.85 billion in Q2 and $5.83 billion from Q3 2012. The (heavily lowered) EPS likewise "beat", printing at $0.11 on expectations of $0.05.

Some companies are notorious for buying back billions in stock in order to mask the decline in their earnings by reducing the number of shares outstanding. Alcoa, which still has a major debt overhang from the last financial crisis, is unable to do that as it simply does not have the free cash flow to dedicate to shareholder friendly activities: in fact, in the second quarter Alcoa's Free Cash Flow tumbled to just 55 million down from $205 million a year ago.

By Trefis:
Alcoa (AA) released its first quarter earnings on Tuesday, April 8, and conducted its earnings conference call on April 9. The company's reported quarterly revenues of $5.5 billion were lower than the $5.8 billion reported in Q1 2013 due to 8% lower year-over-year aluminum prices. As we mentioned in our earnings preview article, smelting capacity reductions also had a role to play in the lowering of revenues.

Moments ago, the company that traditionally kicks off earnings season did just that, and sent the ball into a throw in. The reason: just like all the other companies that have reported and pre-reported so far in the third quarter, its results were a huge miss: AA reported non-GAAP EPS of $0.07 missing expectations of $0.13, on revenues of $5.57 billion, a 10% drop Y/Y, also missing top-line estimates of $5.75. And while the company did have some justifications for the collapse, blaming what else but China...

Some companies are notorious for buying back billions in stock in order to mask the decline in their earnings by reducing the number of shares outstanding. Alcoa, which still has a major debt overhang from the last financial crisis, is unable to do that as it simply does not have the free cash flow to dedicate to shareholder friendly activities. Instead, Klaus Kleinfeld's company is forced to resort to an even more primitive form of EPS fudging: massive quarterly EPS addbacks.